There is still a divergence of opinions on correlation between business cycle and volatility of security markets，which is considered as neglect on state— dependent correlation test in our research．In this paper， based on a bivariate SWARCH Model，we examine the correlation between the GDP growth and security markets return in China．It has been found that the constant correlations between the business cycle and volatility of security markets were weak in the term of entire period，which is supported by other conclusions， but the state—dependent coefficient model shows that the correlations between them is regime——switching significant．The regime—dependent correlations give evidences for“threshold effect”and“asymmetric effect”of volatility of security markets depending on China’s business cycle.

Download